Bài giảng Understanding Economics - Chapter 2 Demand and Supply

Understanding Economics2nd editionby Mark Lovewell and Khoa NguyenChapter 2Demand and SupplyCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.What Is Demand?Demand is a relationship between a product’s price and quantity demanded.Demand is shown using a schedule or curve.The law of demand states that price and quantity demanded are inversely related.Market demand is the sum of quantities demanded by all consumers in a market.The Demand Curve0135791113Quantity Demanded(millions of kg per year)Market Demand Curve for StrawberriesMarket Demand Schedulefor StrawberriesQuantity Demanded(millions of kg)Pointon graphPrice($ per kg)2.502.001.50 9 711Price ($ per kg)0.501.001.502.002.50D b a c a b cCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Deriving Market DemandFigure 2.2, page 3101234567Quantity Demanded (kg per month)Your Friend’s Demand Curve for StrawberriesIndividual and Market DemandSchedules for StrawberriesYou(D0)Price($ per kg)2.502.001.50123234357Price ($ per kg)0.501.001.502.002.50Your Friend(D1)Market(Dm)(kg per month)01234567Quantity Demanded (kg per month)Market Demand Curve for StrawberriesPrice ($ per kg)0.501.001.502.002.5001234567Quantity Demanded (kg per month)Your Demand Curve for StrawberriesPrice ($ per kg)0.501.001.502.002.50D0D1DmCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Changes in Demand (a)Changes in demand:are shown by shifts in the demand curveare caused by changes in demand determinantsChanges in Demand (b)Figure 2.3, page 320135791113Quantity Demanded(millions of kg per year)Market Demand Curve for StrawberriesMarket Demand Schedulefor StrawberriesQuantity Demanded(millions of kg)Price($ per kg)2.502.001.5057 911 7 991113Price ($ per kg)0.501.001.502.002.50D0D1D2Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.(D2)(D0)(D1)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Demand Determinants (a)Demand determinants include the following factors:The number of buyers (an increase causes a rightward demand shift)IncomeFor normal products, an increase causes a rightward demand shift.For inferior products, an increase causes a leftward demand shift.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Demand Determinants (b)Prices of other productsFor substitute products, a rise in the other product’s price causes a rightward demand shift.For complementary products, a rise in the other product’s price causes a leftward demand shift.Consumer preferencesConsumer expectationsChanges in Quantity Demanded (b)Changes in quantity demanded:are shown by movements along demand curveare caused by price changesCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Changes in Quantity Demanded (b)Figure 2.4, page 36050006000Quantity Demanded (pairs of skis)Change in Quantity DemandedPrice ($ per pair of skis)0.501.001.502.00Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.05000Quantity Demanded (pairs of skis)Change in DemandPrice ($ per pair of skis)0.501.001.502.00abD0D0D1Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.What Is Supply?Supply:is a relationship between a product’s price and quantity suppliedis shown using a schedule or curveThe law of supply states there is a direct relationship between price and quantity supplied.The Supply CurveFigure 2.5, page 35Market Supply Schedulefor StrawberriesQuantity Supplied(millions of kg)Pointson graphPrice($ per kg)1.502.002.50 9 513 e d fCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Market Supply Curve for StrawberriesS f e d0135791113Quantity Demanded(millions of kg per year)Price ($ per kg)0.501.001.502.002.50Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Changes in Supply (a)Changes in supply:are shown by shifts in the supply curveare caused by changes in supply determinantsChanges in Supply (b)Figure 2.6, page 36Market Supply Schedulefor StrawberriesQuantity Supplied(millions of kg)Price($ per kg)2.502.001.5011 7 9 111315 35 9S0S1S2Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Market Supply Curve for Strawberries0135791113Quantity Demanded(millions of kg per year)Price ($ per kg)0.501.001.502.002.5015 (S2) (S0) (S1)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Supply Determinants (a)Supply determinants include the following factors:Number of producers (an increase causes a rightward supply shift)Resource prices (an increase causes a leftward supply shift)State of technology (an improvement causes a rightward supply shift)Prices of related products (an increase causes a leftward supply shift)Supply Determinants (b)changes in nature (an improvement causes a rightward shift for some products)producer expectations (an expectation of lower prices in the future causes an immediate rightward supply shift)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Changes in Quantity Supplied (a)Changes in quantity supplied:are shown by movements along the supply curveare caused by price changesCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Changes in Quantity Supplied (b)Figure 2.7, page 38Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.012Quantity Demanded(millions of kg per year)Change in Quantity SuppliedPrice ($ per kg)20406080100120Change in Supply012Quantity Demanded(millions of kg per year)Price ($ per kg)20406080100120S0S1S0baCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Market Equilibrium (a)When a product is in surplus:there is excess supplyprice is pushed downWhen a product is in shortage:there is excess demandprice is pushed upMarket Equilibrium (b)Figure 2.8, page 390135791113Quantity(millions of kg per year)Market Demand and Supply Curvesfor StrawberriesPrice ($ per kg)1.001.502.002.503.00SD153.00 5 13 +82.50 7 11 +42.00 9 9 01.50 11 7 -41.00 13 5 -8Market Demand and Supply Schedules for StrawberriesPrice($ per kg)Quantities(millions of kg) D SSurplus (+)or Shortage (-)(millions of kg)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.SurplusShortageaabbeCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Changes in EquilibriumA rightward demand shift pushes up both equilibrium price and quantity.A leftward demand shift pushes down both equilibrium price and quantity.A rightward supply shift pushes equilibrium price down and equilibrium quantity up.A leftward supply shift pushes equilibrium price up and equilibrium quantity down.Demand Changes and EquilibriumFigure 2.9, page 400135791113Quantity(millions of kg per year)Market Demand and Supply Curves for StrawberriesPrice ($ per kg)1.001.502.002.503.00SD015 a3.002.502.001.501.00Market Demand and SupplySchedules for Strawberries Price Quantities (D0) (D1) (S)($ per kg.) (millions of kg)D1 bshortage 5 7 911139 11 1315171311 97 517Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Supply Changes and EquilibriumFigure 2.10, page 430135791113Quantity(millions of kg per year)Market Demand and Supply Curves for StrawberriesPrice ($ per kg)1.001.502.002.503.00S0D0153.002.502.001.501.00Market Demand and SupplySchedules for Strawberries Price Quantities ($ per kg) (millions of kg) 5 7 9111313 11 9751715 1311 917Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.S1ab(D0) (S0)(S1)SurplusCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Spoilt for ChoiceWilliam Stanley Jevons:assumed measurable utilityoutlined the law of diminishing marginal utility which states that a consumer’s marginal utility declines as more of a product is consumedthis law can be shown by deriving the downward-sloping marginal utility graph for a given consumer and product, based on that consumer’s total utility graph Spoilt for Choice (b)Figure A, page 4701234Cups of CappuccinoTotal UtilityConsumer’s Total and MarginalUtility From CappuccinoQuantityConsumed(cups)01234 0 (a) 12 (b) 20 (c) 24 (d) 26 (e)Utility (utils)48121620TotalUtility(utils)MarginalUtility(utils)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. 12 (f) 8 (g) 4 (h) 2 (i)242801234Cups of CappuccinoMarginal UtilityUtility (utils)481216abcdefghiThe Utility-Maximizing RuleJevons devised the utility-maximizing rulethis rule states a consumer should reach the same marginal utility per dollar for all products consumedin mathematical terms:Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.MU1P1MU2P2=Spoilt for Choice (c)Figure B, page 47 1284201234Cups of Cappuccino(price = $1)QuantityMarginalUtility(MU)(utils)MarginalUtilityper $(MU/P1=MU/$1)(utils)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. 12842Cappuccinos01234Cups of CappuccinoMarginal UtilityPer $ (utils)4812 16 12 8 401234Danish Pastries(price = $2)QuantityMarginalUtility(MU)(utils)MarginalUtilityper $(MU/P1=MU/$2)(utils) 864 201234Cups of CappuccinoDanish PastriesMarginal UtilityPer $ (utils)4812Indifference CurvesUsing indifference curves, consumer preferences can be shown without the need to assume measurable utilityAn individual consumers must merely rank his/her options for various bundles of two products in order of preferenceA consumer may prefer one bundle to another, or be indifferent between the two Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.An Indifference Curve (a)An indifference curve shows all bundles of two goods to which a particular consumer is indifferent.The curve is downward-sloping because, for any point on the curve, all points to the northeast provide more utility and all points to the southwest provide less utilityCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.An Indifference Curve (b)Figure A, page 50HamburgersAlice’s Indifference CurveAlice’s Indifference ScheduleMilkshakes Hamburgers point on graph432 4 3 7Milkshakes 1 2 3 4I0ba c a cCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.112 d04812 dbAt each point onthe curve, Alicederives the samelevel of utility.The Marginal Rate of SubstitutionThe absolute value of an indifference curve’s slope is the marginal rate of substitution (MRS).An indifference curve is convex, since the curve’s MRS diminishes as more of the product on the horizontal axis (hamburgers), and less on the vertical axis (milkshakes) is consumed.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Diminishing Marginal Rate of SubstitutionThe diminishing marginal rate of substitution occurs because, as hamburger consumption rises, more hamburgers must be gained to make the consumer willing to sacrifice another milkshakeCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.A Map of Indifference Curves (a)A map of indifference curves can be drawn for an individual consumer, with each indifference curve further to the northeast representing a higher level of utilityCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.A Map of Indifference Curves (b)Figure B, page 51HamburgersA Map of Indifference CurvesMilkshakes 1 2 3 4I004812I1I2Each curve showspoints that givedifferent levels of utility for Alice.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Budget Line (a)A consumer’s budget line:is drawn based on the assumption that all the consumer’s budget is spent on hamburgers and milkshakeshas a vertical intercept equal to the consumer’s budget divided by the price of milkshakesa horizontal intercept equal to the consumer’s budget divided by the price of hamburgersCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Budget Line (b)has a slope whose absolute value equals the ratio of the two prices (the price of hamburgers divided by the price of milkshakes)divides the graph into an attainable region southwest of the line, and an unattainable region northeast of the lineCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Budget Line (c)Figure C, page 52HamburgersAlice’s Budget CurveAlice’s Budget LineMilkshakes Hamburgers543 2 0 4Milkshakes 1 2 3 4Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.2 604812105The budget curve shows all thosepoints Alicecan reach with herlimited budget.$15/$3$15/$1.501 8010The Utility-Maximizing Point (a)The consumer maximized utility by reaching the highest possible indifference curve on the budget line.This utility-maximizing point occurs on the indifference curve that just touches the budget line at a single point.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Utility-Maximizing Point (b)Figure D, page 51HamburgersMilkshakes 1 2 3 4I004812Alice’s greatestachievable utilityis on the indifferencecurve which touches her budget line at a single point.105b (4, 3)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Deriving a Demand Curve (a)The consumer’s demand curve for hamburgers can be found by tracing out the results of a change in the price of hamburgers given a constant money budget and price for milkshakes.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Deriving a Demand Curve (b)Figure E, p. 53HamburgersMilkshakes 1 2 3 4I104812A decline in the price ofhamburgers from $1.50to $1 causes Alice’s quantitydemanded to rise from 4 to 6, as shown by herdemand curve D.105bQuantity (hamburgers per week)Price ($ per hamburger .501.001.50D04812Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.15e (6,3)I0Understanding Economics2nd editionby Mark LovewellChapter 2The EndCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.